Revenue sharing contract coordination of wind turbine order policy and aftermarket service based on joint effort
| Date | 13 March 2017 |
| DOI | https://doi.org/10.1108/IMDS-03-2016-0088 |
| Pages | 320-345 |
| Published date | 13 March 2017 |
| Author | Ling Liang,Jiaping Xie,Luhao Liu,Yu Xia |
| Subject Matter | Information & knowledge management,Information systems,Data management systems,Knowledge management,Knowledge sharing,Management science & operations,Supply chain management,Supply chain information systems,Logistics,Quality management/systems |
Revenue sharing contract
coordination of wind turbine
order policy and aftermarket
service based on joint effort
Ling Liang
Tourism and Event Management School,
Shanghai University of International Business and Economics,
Shanghai, China, and
Jiaping Xie, Luhao Liu and Yu Xia
Department of Operations Management,
Shanghai University of Finance and Economics, Shanghai, China
Abstract
Purpose –The purpose of this paper is to discuss how wind farms attract wind turbine manufacturers to get
involved in wind turbines’maintenance service with revenue sharing contract of bundled service under which the
background of operation and maintenance (O&M) aftermarket of wind turbine exists. The authors also try to
extend the results to the application of product plus service business mode on large-scale equipment O&M service.
At present, Chinese wind power industry is suffering from production capacity redundancy. The profit levels for
both wind farm and wind turbinemanufacturers are relatively low. It is significant for Chinese wind power industry
development to coordinate the supply chain of wind power in order to reduce O&M costs and increase revenues.
Design/methodology/approach –The present paper discusses product plus aftermarket service contract
design on the background of closed-loop product service chain and uncertain equipment demand using
revenue sharing contract model.
Findings –If centralized decision making is assumed, the authors find that the wind turbine order increases
as the aftermarket service effort level and aftermarket service profit increase; aftermarket service effort level
is positively correlative to the service efficiency. On the other hand, if decentralized decision making is
assumed, the wind turbine order increases as share of the aftermarket service chain by manufacturer to wind
farm increases and share of product supply chain by wind farm to manufacturer decreases. The optimal effort
level of wind farm increases as the share of aftermarket service chain increases while the optimal effort level
of the manufacturer is a concave function of share of aftermarket service chain if service quality linear
correlates with effort level. Meanwhile, the authors find that the revenues of the product supply chain and
aftermarket service chain have a concave relationship. This relationship is not affected by the format of
relationship between service quality and effort level (linear or exponential).
Practical implications –The results could potentially be used to provide the wind turbine manufacturer
with a greater profit space and satisfy wind farm’s equipment maintenance demand at the same time. It can
also guide the practice of revenue sharing in the aftermarket service and manufacturing servitization.
Originality/value –In this model, the authors assumed that both the forward revenue sharing of power
generation by wind farm to manufacturer and the backward revenue sharing of maintenance service by the
manufacturer to wind farm exist in closed-loop product service chain. Then the authors discussed channel
coordination of such cross-revenue sharing contract.
Keywords Aftermarket service, New energy, Revenuesharing contract, Service effort level, Wind farm
Paper type Research paper
1. Introduction
Since the United Nations Framework Convention on Climate Change was published in 1992,
the concept of low-carbon transition has been carried out in global society. By 2050,
Industrial Management & Data
Systems
Vol. 117 No. 2, 2017
pp. 320-345
© Emerald PublishingLimited
0263-5577
DOI 10.1108/IMDS-03-2016-0088
Received 3 March 2016
Revised 15 April 2016
13 May 2016
Accepted 16 June 2016
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0263-5577.htm
The work was supported by National Natural Science Foundation of China (Grant No. 71273091,
“Study on the Pricing Mechanism of the Industrial Chain of Renewable Energy Power under the Goal
of the Carbon Intensity”; Grant No. 71272015, “Contract Optimization and its Application Research of
Closed-Loop Product Service Chain Based on Internet of Things”).
320
IMDS
117,2
Germany plans to raise the ratio of renewable energy generation to 80 percent; Denmark
proposes to get free from the dependence of fossil energy; the French Government is looking
forward to cut down the use of nuclear energy from 75 to 50 percent. Varied proposals have
been put forward by most of the countries in the world based on their own specifications.
Among various kinds of renewable energies, wind energy is importantespecially to China
since the resource is rich in Xinjiang. In recent years, the growth of the wind energy capacity is
significant and the electricity producedby wind is rapidly increasing in China. Meanwhile, the
costs of operation and maintenance (O&M) have attracted the attention of researchers. In a
prediction, O&M costs of wind farms will be as much as $16 billion. Although only 10 percent
of O&M costs are afforded bythe wind farms in Europe, 75percent of wind turbinesin China
are maintained by the wind farms themselves. With the warranty period of wind turbines
getting expired, more and more turbines are in an urgency to be maintained, increasing the
O&M costs of the wind farms. On the other hand, there are only about 90 third-party wind
turbines O&M companies. Two-thirds of them have entered markets in less than two years.
The demand of O&M services, especially three key projects (blades maintenance, maintenance
and management platform tools and components monitoring) is far from meeting. Meanwhile,
the wind turbine manufactures started to place more and more emphasis on the opportunities
of aftermarket servicesof the wind turbine.They tried to changethe traditionalbusiness model
by getting involved in aftermarket services, changing their role from a simple equipment
manufacture to investor, manager and O&M provider of wind farms and entering the
aftermarket with higher added value. This business mode provides not only normal O&M
services to wind turbines, but regular recycle services and size effect of remanufacturing,
reducing the cost and increasing the profits of win d turbine manufactures.
In a word, more and more wind turbine manufacturers provide full-service mainte nance
contract to obtain higher profit, just like Fuji Xerox. Fuji Xerox provides standard maintenance
services to ensure the quality of equipment, such as “periodical replacement for consumables”
and “debugging and clean-up for mechanical parts.”Signing up such contracts guarantees them
long-term repeated service profit while making customer free from multiple business decisions
and promoting customer’s efficiency. At first glimpse, this business mode is good since it
encourages manufacturers to be responsible for their product and take risk of spare parts
purchasing and long-term continuous failures caused by bad design. But the problem is that all
thecostisactuallypaidbyusersandthislong-term contract only benefits manufacturers. These
contracts only achieve lowest service-level agreement but no service improvement contract
which means profit of power generation is obtained by wind turbine manufacturers eventually.
The present paper discusses how wind farms attract wind turbine manufacturers to get
involved in aftermarket O&M services by revenue sharing in wind power generation and
how wind turbine manufacturers stimulate wind farms to raise their effort level to reduce
service cost by revenue sharing in wind turbine O&M service based on Chinese market and
related policy. We also try to extend our result to the application of product plus service
business mode on a large-scale equipment O&M market.
2. Literature review and model development
Earlier studies on revenue sharing contract were mostly based on risk-neutrality and perfect
rationality of contract participants. Recent works, however, illustrate that revenue sharing
also increases the order quantity of retailers, and thus, promote the profits of supply chain
under the condition of random demand and multi-echelon supply chain coordination
mechanism (Giannoccaro and Pontrandolfo, 2004). Both retailers and manufacturers have the
motivation to raise their revenue by introducing revenue sharing contract (Linh and Hong,
2009). On revenuesharing contract design, Cachon (2004)compared revenue sharing contract
with buy-back contract and wholesale price contract and made the conclusion that revenue
sharing contractwas able to coordinate the channel when retail priceis given or retailer price
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